Throw Away the Key--For Less!

Ten years ago, there were just five privately run prisons in America. Today, 142 privately owned or administered prisons house nearly 70,000 inmates, and some prison-industry stocks are hot gainers on Wall Street. At present 17 firms compete for lucrative state and federal contracts, but one reigns supreme. Corrections Corporation of America (CCA), the granddaddy of the industry, has nearly half of the contracts awarded so far. And its founders are itching to move to Minnesota.

Prior to the turn of the century, for-profit prisons were a mainstay of the American penal system. But the results were horrendous. Prisoners were routinely beaten, subjected to filthy, overcrowded conditions, and farmed out as slave labor. By 1925, however, most states had banned the use of privately run prisons, and this prohibition remained in place until 1984. The federal government re-opened the market that year when it hired CCA to run an immigration detention center in Houston. Two years later, CCA went public and began to expand its overseas operations. In recent years its stock price has soared--from around $8 a share in 1992 to $30 currently--and the company now boasts annual revenues of nearly $300 million.

On the domestic front, most of CCA's holdings are in the South. Its home state of Tennessee has CCA under contract to run nine of its facilities; in Texas the figure is 12, and Florida is a close third with seven. But CCA and other private corrections companies have been unable to tap the Northwestern and Midwestern markets. Unlike their Southern counterparts, Northern states have been slow to embrace privatization. But their reticence appears to be waning. Last year officials at the Prairie Correctional Facility in Appleton, Minnesota ("Little Big House on the Prairie," CP, 2/8/95) invited CCA to manage their beleaguered prison. The company, sensing a shift in the political and philosophical winds, decided to actively court Minnesota politicians for the Rush City project.

Minnesota Department of Corrections (DOC) officials maintain that it will take three years and $89 million to build the Rush City prison. CCA, however, claims it can do the job in a year for $55 million. In addition, the firm says it can keep per-prisoner administrative costs to $55 a day--compared to the DOC's $88 estimate--and can eliminate 75 staff positions without compromising security. But DOC officials contend that these figures are wildly optimistic, and fail to reflect some of the cost of doing business in Minnesota.

"Given our programs, even with the cell-restructuring (double-bunking), a $55 per diem figure is virtually impossible," says Dennis Benson, assistant commissioner of the DOC. Benson maintains that the price advanced by CCA is not only unrealistic but irresponsible. "We need to keep the sex offender, chemical dependency, and rehabilitation programs, if we want to have an impact on recidivism," he says. "And these programs cost money." He adds that although the DOC originally proposed an $88 per diem for Rush City, the department reassessed its plan and has since lowered that amount to $73 per inmate per day. "But we can't safely do this for less," he cautions.

Not true, says John Rees, CCA's vice president of business development: "We are on the record for saying we'll do this for $55 dollars a day, and we stand by this figure." According to Rees, the company saves money by centralizing its administrative services, trimming excess staff, using standardized architectural plans and construction methods, and by purchasing materials in huge quantities. However, industry experts and labor leaders say that measures like these, though they do help lower operating costs, aren't the real reason private companies can undercut governmental agencies. "The real savings are found through the management of the work force," says Tom Beers, local spokesperson for the American Federation of State, County and Municipal Employees (AFSCME).

Sixty to 70 percent of a prison's operating cost is labor. Beers and other union officials say that companies like CCA maximize profits by decreasing staff size and refusing to hire union workers. "Although the company claims to be union-friendly," he notes, "it has hired just 23 union employees. Eight doctors at a Washington, D.C. detention center and 15 food-service workers in Tennessee." Union workers are not only more expensive, Beers explains, but also more experienced. "Private companies pay lower wages, and this affects the quality of the staff. We [Minnesota] have had only one escape in the past decade.

"Unlike CCA," he adds ominously.

Last month, two sex offenders escaped from a CCA-run facility in Houston. Although the pair was soon recaptured, no charges could be filed in their jailbreak. Since the prisoners had been shipped in from Oregon and were housed in a private CCA facility, Texas officials lacked jurisdiction. But the two men couldn't be charged in Oregon either, as their escape took place in Texas. Legal loopholes aside, CCA opponents cite a number of other safety concerns. Riots have erupted at a number of CCA facilities around the country. The worst of these occurred in West Tennessee, when inmates from North Carolina revolted over being shipped so far from home.

And a juvenile detention center in South Carolina recently announced it would not renew its contract with the company. In August 1996, six youths escaped from the Columbia, South Carolina, facility, and a couple months ago, another eight hit the road. More troubling, however, is the treatment of the teens who have remained in CCA's custody. An independent consultant, hired by the state to investigate claims of abuse, discovered that staff members would "hog-tie" and gas the kids to control them. "These are not techniques we use or accept in this state," says Flora Boyd, who oversees South Carolina's juvenile corrections system.

Rees, a former prison warden, maintains that most of CCA's employees are career corrections officers. "I have 30 years of experience in this industry," he declares, "and we have a cadre of wardens that each have over 24 years of experience." According to corrections professionals, CCA lures experienced staffers away from government facilities with the promise of future financial rewards. Since private companies can't offer comparable pension plans, companies like CCA have formed Employee Stock Ownership Programs (ESOPs). And according to William Archambeault, a criminologist who studies private prisons, half of CCA's employees have at least $100,000 in company stocks, and half of its wardens are millionaires.

Despite CCA's claims to the contrary, Benson says the industry hires too many novices, endangering both staff and inmates. "It's detrimental to hire inexperienced guards," he claims, "especially when it's anything other than a low-security facility. Someone's husband, son, or father is going to be at this [Rush City] facility. We need to think this through carefully."

But the potential for savings can look mighty attractive to politicians and their constituents. "As policymakers, we can't afford to ignore a proposal that could save taxpayers a billion dollars," says state Sen. Randy Kelly (DFL-St. Paul). Kelly sits on the Crime Prevention Committee, and says that although the DOC has "done a good job in the past," its costs are out of line: "Too much money is being spent on corrections. We rank number three in the nation for per diem costs, and have the second highest inmate-to-guard ratio." (Alaska is the top spender at $106.63 per inmate per day, and Alabama ranks the lowest with a meager $25.10.)

"The considerations go beyond cost," counters Benson. "The Department of Corrections does not support privatization at this custody level because of the risks involved." Benson contends that although the DOC supports farming out contracts for food service and garbage removal, the logic behind a wholesale privatization effort is seriously flawed. "Prisons make money only when filled to near capacity," he says. "What happens [inside the prison] if the population drops and a for-profit company quits seeing profits?"

In the words of Jenni Gainsborough, a spokesperson for the ACLU's National Prison Project, "A company's primary obligation is to its stockholders. And that means keeping profits high and operating costs low. Any thought of rehabilitation is bound to disappear."

But according to Randy Kelly, that's already the case. "A recent study by the Minnesota legislative auditor's office found that our programs, regarded as some of the best in the nation, haven't affected the recidivism rate," he says. Kelly demurs by stating that this doesn't include sex-offender programs, but adds that the Legislature is tired of throwing good money after bad. "Corrections is the fastest growing part of our budget," he notes, "and we'd rather spend our money on education." And since CCA claims to be able to save the state nearly a billion dollars, Kelly maintains that he and his fellow pols would be remiss if they didn't at least consider the offer. "Minnesota spends a lot on its corrections system, but we aren't producing any better results than the states spending considerably less," he adds.

Construction of the Rush City facility is slated for this spring. As delays can run into the millions, political insiders are betting that the Legislature will allow the Department of Corrections to build the prison, and once completed, turn it over to CCA or another private contractor. Kelly concedes that this is a viable option, and says that CCA has already expressed an interest in such a venture.